Market Update | February 3rd - February 7th

The What

On Saturday, February 1st, President Trump officially passed the executive order putting his 25% tariffs into place onto Mexico and Canada, as well as 10% onto China. This drove down expectations for the market, causing a 2% drop when it opened on Monday. Fortunately, later that day, the tariffs were called off, leading to a reversal of the fears that caused the selloff on Friday and the opening drop on Monday. That led to a 4 day streak of positive gains, making up most of, but not all ground lost last week. In addition to the call off of tariffs, some positive earnings were released which aided the rebound. However, on Friday, the announcement of new tariffs potentially going into place led to a slight dip.

We've gone over general trends, so let's look at some specific indexes. First, the S&P 500, made up of the 500 leading publicly traded companies in the United States. After last week's dip, the index rebounded, rising 1.2%. The Dow Jones Industrial Average, made up of 30 of the most actively traded companies, managed a marginal increase of 0.08%. Finally, the Nasdaq Composite, made up of 2,500 stocks heavily weighted toward the technology sector, rose 1.6%.

Next, let's look at some commodity performance this week. Gold prices continued their boom, rising 2.7%. Meanwhile, oil prices continued their downward trend, decreasing 3.9%.

The Why

This week started on a low note with all main index funds losing value over the weekend with the announcement of Trump's tariffs. The cause for concern surrounding the tariffs is the fear of inflation. Because tariffs increase costs, prices tend to rise, hurting the chance of the Fed cutting rates and compromising growth. Take a second and imagine the mayor of your city adding a toll on every bridge or road that people use to enter. Transportation becomes more expensive, and those higher costs trickle down to the price of goods, making everything more expensive for consumers. That's how tariffs work.

Luckily, on Monday, Trump called off the tariffs on Mexico and Canada. This was really helpful to the markets because it reversed earlier fears. Remember the bridge example? This was the equivalent of the mayor changing his mind. Optimism that tariffs were behind us led to a 4 day streak of market growth.

In addition to tariff reversals, positive earnings reports facilitated the market rise. Palantir (PLTR), Alphabet (GOOGL), and Amazon (AMZN) all beat expectations. All companies are required to release earnings reports 4 times per year, once per quarter. These reports give investors a good idea of the profitability of a company. Because these are such massive companies, good news regarding their profitability signals similar trends for other companies in the tech industry, which has been the biggest driver of the market in recent years.

It wasn't all sunshine and rainbows unfortunately, as on Friday a disappointing jobs update and reports of potential new tariffs on the way from the Trump administration killed the excitement. Think back once again to that bridge example, and imagine the mayor talking about changing his mind once again. This back-and-forth creates volatility, as markets react strongly to policy changes that can shift overnight. That's why it's really important to diversify your portfolio in times like this. Spreading your investments across different sectors and including fixed-income assets like bonds can help reduce your reliance on any single factor, providing more stability for your portfolio.

What’s Next

Next week, there are two major events you keep your eye on to help yous Tay ahead of the curve. First, at the time of writing this, Trump has already begun announcing potential tariffs on aluminium and steel, which could have significant market implications. Second, the Consumer Price Index (CPI) inflation data for January is scheduled to be released this week. This will give investors insights into inflation trends, helping to gauge the likelihood of future rate cuts by the Federal Reserve.

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Do you think last week's growth will continue? Let us know in the comments!